Variance ratios, structural breaks and nonrandom walk behaviour in the Indian stock returns

Hiremath, Gourishankar S and Bandi, Kamaiah (2012): Variance ratios, structural breaks and nonrandom walk behaviour in the Indian stock returns. Published in: Journal of Business & Economic Studies , Vol. 2, No. 18 (2012): pp. 62-81.

Abstract

The paper investigates the issue of behaviour of stock returns in India. A non-parametric variance ratio test is used to examine the issue. Largely the results indicate non-random walk behaviour of Indian stock market. However, the sub-sample analysis of stock returns based on structural breaks show an increasing mean-reverting tendency after occurrence of structural breaks in the series. The events associated with break dates mainly are volatile exchange rate movements, oil shocks, internet bubble burst, sub-prime crisis, global economic meltdown and political uncertainties. Rejection of random walk is relatively stronger for smaller and medium indices than larger indices implying that market capitalization and liquidity play a greater role in improving efficiency of the market.

• Item Type: MPRA Paper
• Language: English
• Keywords: Variance ratio, random walk, market efficiency, mean-reversion, BSE, NSE, Indian stock market.
• Subjects: G - Financial Economics > G0 - General; G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions; G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading; G - Financial Economics > G1 - General Financial Markets > G17 - Financial Forecasting and Simulation

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